This chapter examines the main strengths and weaknesses of the business environment for SMEs and entrepreneurs in Egypt. It assesses macro-economic conditions, the regulatory environment, the innovation system, educational attainment and skills, infrastructure and energy, taxation, access to finance, competition, and trade and foreign direct investment. The chapter concludes with a series of policy recommendations for improving the business environment for SMEs and entrepreneurs.
SME and Entrepreneurship Policy in Egypt
Abstract
The performance and development of SMEs and entrepreneurs is strongly influenced by the wider business environment in which they operate. This reflects a variety of factors including overall macroeconomic conditions, regulatory frameworks, the accessibility of markets, and the availability of finance, skills and innovation resources. In order to support SME and entrepreneurship development, policy makers must consider the conduciveness of the wider business environment. The importance of this is reflected in the following elements of the OECD Recommendation on SME and Entrepreneurship Policy:
Recommendation 2: Ensuring that implications for SMEs and entrepreneurs are considered across the diverse policy areas that influence their prospects and outcomes in order to enhance policy synergies, address potential trade-offs and reduce administrative burdens, including through increased attention to their specificities and circumstances in policy and regulatory design, SME tests and evaluations, consultation mechanisms, streamlined processes and user-centric approaches in implementation.
Recommendation 8: Enabling entrepreneurship by reducing barriers to entry, exit, business transfer and business succession, and by easing possibilities to re-start for entrepreneurs who fail; and ensuring that policies and the regulatory environment support competition and provide incentives and support for innovative entrepreneurs to scale up.
Recommendation 10: Facilitating the transition from informal to formal entrepreneurship, easing access to resources where needed; and ensuring a level playing field and enabling conditions for productive employment and decent work for the self-employed and for all kinds of entrepreneurship, including in the platform economy.
Recommendation 12: Providing adequate incentives for SMEs and entrepreneurs to innovate and fostering their capacity to benefit from innovation diffusion, through conducive market conditions; robust and inclusive innovation ecosystems, local networks and infrastructure; and appropriate targeted measures, where necessary.
Recommendation 13: Enhancing SMEs and entrepreneurs’ access to a diverse range of financing instruments, sources and channels that are adapted to their needs in terms of development, growth and sustainability, by implementing evidence-based policies and regulatory approaches conducive to transparent and resilient SME finance markets; leveraging the role of new technologies; encouraging timely payments; and strengthening SME financial skills and vision.
The review of Egypt’s business environment presented in this chapter covers each of the above elements of the OECD Recommendation, in addition to a range of other features of the business environment that have a bearing on SME and entrepreneurship development in Egypt.
Over the past 15 years, Egypt’s economy has demonstrated resilience and recorded solid growth in the face of recurrent periods of disruption associated with the global financial crisis, the political transition and most recently the COVID-19 pandemic. Between 2015 and 2019, annual real GDP growth averaged 5.5% (International Monetary Fund, 2023[1]). This compares to an average of 3.1% among other middle-income economies in the Middle East and North Africa (MENA) region (Figure 3.1).1 The Egyptian economy also weathered the COVID-19 induced shock better than most countries in the region, recording real GDP growth of 3.6% in 2020 and 3.3% in 2021. In 2022, GDP growth bounced back to 6.7%, which was the second highest growth rate among middle-income countries in the MENA region. The strength of Egypt’s economy during this period supported sustained declines in the unemployment rate, from 13.4% in 2014 to 6.4% in 2022 (International Labour Organization, 2024[2]).
Economic growth during this period has been boosted significantly by increases in commodities exports and state-led investments, for example in housing and infrastructure. This level of state-led investment risks crowding out private investment, both domestically and from abroad. Looking ahead, it will be necessary for the private sector to play a more prominent role in driving economic growth if Egypt is to enjoy sustained economic growth in the medium to long term.
The Egyptian economy currently faces a number of macroeconomic challenges that are slowing growth and creating difficulties for SMEs and entrepreneurs (OECD, 2024[3]). The COVID-19 pandemic brought about a major fall in tourism revenues, which are a key source of foreign currency inflows for the Egyptian economy. Meanwhile, Russia’s war of aggression against Ukraine twinned with a tightening of global financial conditions triggered significant capital outflows, as foreign investors exited emerging markets. These factors have led to considerable foreign currency shortages. The depletion of foreign reserves has been compounded by significant increases in the price of imported goods, which has driven up the annual rate of inflation to 36% in February 2024 (Central Bank of Egypt, 2024[4]). The rising cost of inputs is placing a considerable strain on SMEs and entrepreneurs in Egypt.
In order to help to restore Egypt’s foreign currency reserves, a USD 3 billion arrangement was approved by the International Monetary Fund under its Extended Fund Facility in late 2022 (OECD, 2024[3]). As part of this arrangement the Egyptian government committed to a permanent shift towards a flexible exchange rate regime. This has led to a significant depreciation of the Egyptian pound, which has fallen in value from around USD 25 at the end of 2022 to approximately USD 48 as of March 2024. The short-term effect of this depreciation is a substantial increase in the cost of imports, adding to Egypt’s inflationary challenges. However, the depreciation of the local currency will also bolster exports and increase resilience to external shocks. The effect of the depreciation on SMEs and entrepreneurs will therefore be mixed, depending on their import- and export-intensity. However, the improved macroeconomic stability associated with the flexible exchange rate will benefit the broad population of Egyptian SMEs and entrepreneurs in the longer-term.
To contain inflationary pressures, the Central Bank of Egypt has embarked upon a path of monetary contraction, progressively raising its discount rate from 8.25% in February 2022 to 27.25% by March 2024. Meanwhile, state-owned banks have issued high-interest certificates of deposit in order to increase savings rates. This is likely to make SME borrowing more difficult. The measures will also weigh on demand in the Egyptian economy, with significantly slower GDP growth forecast between 2023 and 2025 (OECD, 2024[3]). This will have significant implications for the markets and revenues of SMEs and entrepreneurs and could also affect rates of business creation and closure.
International trade
Access to international markets is important to SME and entrepreneurship development. In Egypt, there are opportunities to significantly expand SMEs’ participation in international markets. Tapping into these opportunities would enable more SMEs to experience the rich assortment of benefits that exporting can deliver, including an enlarged revenue base, risk diversification, technology transfer and an improvement in standards and efficiency.
Currently, trading frictions, particularly surrounding importing, are a challenge for businesses in Egypt (World Bank, 2020[5]). From an administrative perspective, the documentary and border compliance times associated with importing were among the highest in the world in 2020 (World Bank, 2020[5]). From a financial perspective, the rate of tariffs applied to goods entering Egypt are also high, particularly in the case of agricultural goods. In 2021, the simple average tariff applied on agricultural goods was 91% in Egypt (World Trade Organization, 2023[6]). Meanwhile, the documentary compliance costs of importing procedures in Egypt was the second highest in the world in 2020 (World Bank, 2020[5]). These obstacles to trade reduce businesses’ access to important inputs and diminish their ability to compete in international markets. There are also wider macroeconomic impacts of the large import barriers in Egypt, including an allocation of resources towards less efficient sectors that are shielded from international competition by the import restrictions. Simplifying and reducing the costs of importing and exporting would help to increase the share of Egyptian SMEs that trade internationally. An important element of this is boosting transparency in trading procedures to reduce the need for established networks and contacts.
SMEs and entrepreneurs’ access to international markets is being supported by a range of government measures to raise awareness and understanding of export opportunities and processes and promote SMEs’ exports in overseas markets. The Ministry of Investment and Foreign Trade’s Export Development Authority (EDA) has produced an information portal where SMEs can access information about exporting opportunities. The EDA further works to promote Egyptian products in key overseas markets, although the effectiveness of these efforts is inhibited by the EDA’s lack of a physical presence outside of Egypt. MSMEDA has also established a new Export Department to support SMEs in exporting. Other important measures to facilitate trade are the creation of the National Single Window (“Nafeza”) and the Advanced Cargo Informatiosystem.
In addition, in April 2019, Egypt became the 18th country to ratify the African Continental Free Trade Area (ACFTA) agreement. The agreement, which had ratified by 47 African countries as of February 2024, is set to significantly lower tariff and non-tariff barriers to intra-African trade for Egyptian businesses (World Bank Group, 2023[7]). The Common Market for Eastern and Southern Africa is also important in this respect. Going forwards, it is important that SMEs and entrepreneurs are made aware of these potential benefits to enable them to exploit fully the opportunities offered by the agreement.
On the regulatory side, steps are being taken to simplify export and import procedures, including through digitalisation and automation. Many public and private sector entities are involved in the process of regulatory reform in Egypt. However, the rate of change is limited by capacity constraints within key entities. In particular, the Egyptian Regulatory Reform and Development Activity (ERRADA) does not have the level of staffing, information or networks needed to perform systematic regulatory impact assessments and develop strategies for regulatory simplification with respect to international trading procedures. These issues are discussed further in the next section on the Regulatory Environment.
Foreign direct investment
Foreign direct investment (FDI) is a key channel through which domestic economies can integrate into the global economy, facilitating the exchange of knowledge and supporting local enterprise development (OECD, 2020[8]). Egypt benefits from a healthy level of foreign direct investment, although the spillovers to SMEs can be strengthened. Net inflows of foreign direct investment to Egypt rose steadily from -0.2% of GDP in 2011 to 3.3% of GDP in 2018, before falling back to 1.3% in 2021. The United Kingdom stands out as the largest source of FDI for Egypt, with the United States, Belgium and the United Arab Emirates also important investors (OECD, 2020[8]). Much of Egypt’s FDI is concentrated in the hydrocarbons sector, although financial services, real estate and manufacturing are also important sectors.
Zones are an important element of Egypt’s strategy for attracting FDI (OECD, 2020[9]). Egypt currently has nine public free zones (Alexandria (Amrya), Cairo (Nasr City), Port Said, Suez, Ismailia, Damietta, Shebeen ALKoum, Qeft, and Media Zone), with investment incentives and infrastructure designed to attract investors. A major reform of investment incentives in Egypt was instituted through Investment law No. 72 of 2017, which aims to:
Increase Egyptian exports.
Attract foreign capital.
Introduce new technology.
Provide employment opportunities.
The Law exempts projects in free zones from custom taxes, sales tax and other fees. It also introduced investment zones with the objective of integrating business clusters in various fields. Developers of the cluster provide lands and industrial units for the investors either through rent or sale. Egypt currently has 10 investment zones, which play an important role in supporting investment projects and companies.
Each type of zone provides the investors with certain benefits, depending on their goals. If the objective of establishing the business is to export, the public free zone is the most suitable option. If the investor is looking for easier procedures and ready-made facilities without a focus on exporting, then the investment zone is the most suitable option. Generally, these free zones are not sector specialised, with the exception of Cairo’s MediaZONE.2 Egypt also has a system of private free zones for investment projects that need to be situated in a specific location outside of a public free zone. These private free zones offer the same benefits to investors as the public free zones. There are currently 204 private free zones in Egypt.
In addition to the public and private free zones and investment zones, Egypt also has a number of technological zones, special economic zones, industrial zones and qualified economic zones that involve numerous public entities. This complex system of zones can be difficult to navigate for businesses and investors and can also lead to issues of overlap and duplication (OECD, 2020[9]). Several OECD countries have introduced collaboration networks in order to help to manage the complex institutional arrangements of investment promotion activities (OECD, 2022[10]). Examples include the Netherlands’ “Invest in Holland’ network – which is a collaborative group formed by the Netherlands Foreign Investment Agency, the regional economic development offices, local governments and the Holland International Distribution Council – and Portugal’s National Economic Internationalisation Programme, which promotes inter-institutional action to increase FDI flows and achieve a balanced distribution of investment across the country. A similar approach could be considered in Egypt to enhance co-operation between the different entities involved in operating the different types of zones across the country.
It would be beneficial to focus on promoting further the development of higher value-added manufacturing activities within Egypt’s zones, for example in the logistics, food, chemicals and automotive sectors. More can also be done to enhance positive spillovers from foreign companies operating in Egypt, with just 1.3% of small businesses (5-19 employees) reporting using technology licensed from foreign companies (World Bank Enterprise Surveys, 2023[11]). To enhance linkages between foreign companies and domestic SMEs, supplier development and matchmaking programmes and incentives could be strengthened.
While the various zones offer more attractive conditions for foreign investors, restrictions on FDI inflows for the country as a whole can be substantial. The value of the OECD’s FDI Restrictiveness Index (which considers foreign equity restrictions, discriminatory screening or approval mechanisms, restrictions on key foreign personnel and operational restrictions) for Egypt in 2020 was 0.12, indicating that Egypt is less open to FDI than is average for OECD countries. The contrast in investment conditions and incentives between the free zones and the rest of the country brings a risk that the free zones have an excessively distortive impact on the economy by creating an uneven playing field between firms inside and outside of the zones (OECD, 2020[9]). This can be addressed in part by reducing regulatory burdens and trade barriers for inland companies.
Egypt is currently working on many reforms regarding FDI restrictions, with the aim of gradually increasing FDI inflows. For example, businesses can now import and export without having to be registered with the importers or exporters register, while foreign workers have the right to transfer all or some of their income abroad. Non-Egyptian investors are also granted residence in Egypt throughout the duration of their project, and the limit on the proportion of foreign workers in the project has been increased from 10% to 20%. Strategic projects may be exempted from the foreign worker cap altogether.
The activities of SMEs and entrepreneurs take place within a framework of regulations and legislation that stipulates how they must conduct their operations. By enforcing property rights, enabling contracts and limiting negative externalities, legal and regulatory frameworks are essential facilitators of businesses’ operations (OECD, 2020[12]). However, regulations can also hinder businesses by prohibiting certain activities and/or imposing a considerable administrative burden. The costs of complying with regulations are proportionally higher for SMEs than for larger businesses, who often have fewer resources to devote to understanding and complying with regulations (OECD, 2020[12]). Recommendation 2 of the OECD Recommendation on SME and Entrepreneurship Policy highlights these specific circumstances and needs of small and new businesses and calls for legal and regulatory frameworks that accommodate these.
Regulatory burden
Numerous stakeholders identified the regulatory environment as the most important bottleneck for SME and entrepreneurship development in Egypt. This perception is seemingly validated by the results of the World Bank’s Ease of Doing Business study, which ranked Egypt below many other middle-income countries in the MENA region in 2020 (World Bank, 2020[13]). The regulatory environment is a principal driver of the high rates of informality described in Chapter 1 of this report. The informational, administrative or financial barriers to obtaining a license induce many businesses to conduct their activities without a license, while the time and cost of regulatory compliance creates a further disincentive for businesses to operate in the formal economy.
Some specific areas where there are opportunities to reduce the regulatory burden on Egyptian SMEs and entrepreneurs include:
Business licensing: the cost of starting a business amounted to 20.3% of per capita income in 2020 (World Bank, 2020[13]). By contrast, the cost of starting a business is below 1% of per capita income in many OECD countries. Registering a limited liability company with the General Authority for Investment & Free Zones (GAFI) requires a bar association endorsement fee equal to 1% of the issued capital of the company. This is in addition to a number of other fees associated with obtaining the necessary licenses, certifications and registrations necessary to commence operations. A positive development is that, since 2023, GAFI has launched its services to establish and register businesses online through its website (www.gafi.gov.eg), including the payment of charges and the electronic signing of documents. Meanwhile, MSMEDA’s One Stop Shop has created an online service to apply for project classification and benefits certificates.
Tax payments: Egyptian businesses were required to have visits from or meetings with tax officials 2.6 times per year, which is higher than the frequency of visits in comparable countries. Egyptian businesses also make 27 tax payments per year, which is nearly double the number seen in the MENA region (16 tax payments per year). As a result, the average amount of time taken to prepare and pay taxes in Egypt is 370 hours per year (equating to more than two months of a full-time employee’s time).
Enforcement of contracts: There is scope for Egypt to streamline the enforcement of contracts, with court processing times slower than in some other MENA countries (World Bank, 2020[5]).
Property registration: In 2020, it took an average of 76 days to register a property in Egypt, compared to an average of just 38 days among middle-income countries in the MENA region (World Bank, 2020[5]). It should be noted, however, that the MSME Development Law No. 152 of 2020 includes provisions to address this.
Insolvency recovery: In 2020, the insolvency recovery rate was just 23 cents on the dollar, which was among the lowest in the MENA region (World Bank, 2020[5]). This weighs on SMEs and entrepreneurs’ access to finance by adding uncertainty among investors surrounding credit recovery.
One factor that contributes to the challenges described above is that businesses need to interact with a large number of government entities in order to conform with licensing and regulatory requirements. This results in high compliance costs that are difficult for micro and small businesses to manage. Other issues include a lack of transparency surrounding regulations and reported inconsistencies with the application of regulations.
Efforts to reduce the regulatory burden
The importance of reducing the regulatory burden on SMEs and entrepreneurs is well recognised within the Egyptian government, which has taken commendable steps in recent years to address this issue. These measures are very important and necessary steps towards increasing Egypt’s alignment with the OECD Recommendation on SME and Entrepreneurship Policy with respect to facilitating formal entrepreneurship. However, it is important to monitor the take-up and impact of these measures over time in order to assess implementation progress and determine whether further or different initiatives are needed.
MSME Development Law No. 152 of 2020
Egypt’s MSME Development Law No. 152 of 2020 (referred to henceforth as the “MSME Law”) includes a number of important measures to streamline licensing procedures and encourage the formalisation of enterprises:
Temporary 5-year licenses are available to informal enterprises that are applying to formalise. These licenses allow informal enterprises to benefit from the range of incentives offered under the MSME Law, including reduced corporate tax rates and access to the 30% of available space in industrial zones, touristic areas, urban communities and reclaimed agricultural land that is set aside for MSMEs.3 Furthermore, during the 5-year licensing period, lawsuits and penalties against the informal enterprises are placed on hold starting from the point at which the license is issued. By March 2023, 24 670 temporary licenses had been issued to informal enterprises, with 9 200 informal enterprises having subsequently become formalised. While uptake of the temporary licenses is expected to grow significantly, the number of informal enterprises supported so far through the scheme represents only a small proportion of the nearly 2 million informal businesses across Egypt. Box 3.1 presents policy approaches to encouraging formal entrepreneurship in Morocco and Tunisia and discusses the lessons for Egypt as it implements measures to increase formality.
Taxes will not be applied retroactively for informal enterprises that become formalised.
One Stop Shops are to be created within the offices of MSMEDA and the General Authority for Investment and Free Zones (GAFI). The role of the SPUs would be to facilitate the issuance of approvals and licenses that are required under Egyptian law. The SPUs also issue temporary licenses valid for a period of 1-2 years.
Informality is widespread across North African economies. As is the case in Egypt, this informality is often driven by the complexity of licensing and registration procedures, as well as the wider regulatory compliance burden. In order to help informal enterprises and workers to formalise, Morocco adopted an “auto entrepreneur” law in 2015. The law included provisions to make it easier and simpler to register a business and pay taxes. Tunisia followed suit with a similar law in 2020, which provides the additional benefit for entrepreneurs of access to social security in exchange for a social contribution of 7.5% of annual turnover (with an exemption of the social contribution during the first year). In the case of both Morocco and Tunisia, the simplified tax regime involves income tax payments based on businesses’ annual turnover. Informal enterprises in the manufacturing and services sectors are eligible for the programme in Morocco, while in Tunisia, the scheme is also open to the high number of informal agricultural enterprises.
Morocco and Tunisia’s approaches bear a resemblance to the provisions laid out in Egypt’s MSME Law, which also includes a simplified tax regime alongside other incentives for formalisation. Valuable lessons can therefore be drawn from the experience of these two countries. As Egypt seeks to widen the implementation of the MSME Law, it will need to reduce information gaps and overcome negative perceptions that informal enterprises often have towards government programmes through outreach and trust-building activities. In Morocco, this was achieved through forming partnerships with more trusted public institutions (in this case the post office) in the implementation of the programme, as well as through seminars and training sessions administered through Morocco’s network of non-governmental organisations. Another lesson from the experience of Morocco is that, even with the newly registered status, auto entrepreneurs often struggle to obtain credit from banks due to concerns surrounding unreliable income streams or the lack of credit or trading history. To address this, it is necessary to complement formalisation incentives with a range of other supports for newly registered enterprises, including dedicated financial instruments.
Permanent unit at the Cabinet of Ministers on start-up policies, laws and regulations
On 4th June 2023, Prime Ministerial Decree No. (2136) of 2023 was issued, establishing a permanent unit at the Cabinet of Ministers, tasked with proposing policies, laws, and regulations suitable for the growth and prosperity of startups in Egypt. This unit is headed by the CEO of the General Authority for Investment and Free Zones and includes members from relevant entities. The supports provided to start-ups through this unit include:
Fast Track Office for Electronic Company Formation, which ensures the quick completion of formation procedures for entrepreneurs.
Consultation and guidance, which provides responses to inquiries and various consultation and guidance sessions across different fields.
Complaint handling, which receives and examines complaints from startups and entrepreneurs, referring them to the appropriate authority for study and resolution, in line with the agreed complaint committee mechanisms.
Shared workspaces for start-up owners and entrepreneurs.
The Unit is currently undergoing an internal review of policies, procedures and bottlenecks and is examining international practices in order to identify possible areas for intervention.
Law No. 19 of 2023
Another relevant development is the issuance of Law No. 19 of 2023, which relates to the regularisation of the status of unlicensed industrial facilities. The law allows, within a maximum period of 3 years from the date of its entry into force, the granting of temporary operating permits for a period of one year to existing unlicensed industrial facilities, after submitting a declaration of the industrial facility’s commitment to environmental requirements, civil protection procedures, and all established controls.
Egyptian Regulatory Reform and Development Activity (ERRADA)
In order to address the challenges surrounding the regulatory environment, the Egyptian Regulatory Reform and Development Activity (ERRADA) was launched in 2008. Between 2008 and 2012, an intersectoral advisory council oversaw a systematic review of regulations and laws in order to identify redundant regulations and streamline administrative procedures. This process involved eleven ministries and numerous other government agencies, and resulted in an inventory of all regulations and legislation affecting businesses in Egypt (OECD, 2014[15]). In the first year of ERRADA’s operations, a large number of legislative and regulatory acts were reviewed, eliminated or modified. This process involved consultations with the private sector, co-ordinated through a business advisory council. Steps were also taken to introduce regulatory impact analysis in Egypt.
ERRADA’s activities have been disrupted due to political instability, notably in 2012 when the programme was suspended altogether before eventually being reinstated in 2019. Today, ERRADA’s mandate is to reform the Egyptian legislative and regulatory framework through regulatory impact assessments (RIAs), policy evaluations and stakeholder consultation. ERRADA currently has less than 20 full time employees, providing it with a capacity to conduct a limited volume of RIAs on an ad-hoc basis, often at the request of ministries or department. To facilitate the necessary volume of RIAs to sufficiently address the regulatory challenges that exist in Egypt, it is important to expand the capacity of ERRADA and take steps to increase information sharing and co-operation from public entities. Expanding the capacity of ERRADA would allow it to conduct more RIAs and also provide training to government departments and ministries on how to conduct their own RIAs, building on the current support that ERRADA provides in this area through the publication of guidance documents.
ERRADA also attends sessions of parliament relating to economic issues, conducts assessments of Egyptian laws and regulations with international comparisons and benchmarking, performs stakeholder consultations, and provides comments and recommendations on proposed new laws that are submitted to legal experts in the prime minister’s cabinet. However, ERRADA’s recommendations are not mandated by law, which means that they are not always taken up by relevant government departments or ministries.
RIAs are not currently mandated by law and there are no legal requirements obliging government entities to simplify existing regulations. However, draft laws in these areas are under review by cabinet. Creating enforceable mandates for the streamlining of existing regulations and the impact assessment of proposed new regulations should be an important priority for improving conditions for SME and entrepreneurship development. ERRADA would have a key role to play in building the capacities within government necessary to implement these initiatives successfully, although it needs drastically more resources in order to fulfil its mandate of reducing the regulatory burden. Talent attraction is a challenge within ERRADA, since its activities require highly skilled workers in fields such as law and economics. Since the withdrawal of funding from USAID, ERRADA has struggled to offer competitive salaries to attract and retain skilled workers.
Box 3.2 describes the case of Portugal’s Simplex programme, which provides relevant lessons for Egypt as it seeks to further reduce the regulatory burden on businesses. Box 3.3 presents Greece’s approach to simplify the business environment through a shift from ex-ante to ex-post authorisations.
Portugal is a good example of a country that has initiated a series of reforms to address the need to remove burdensome business requirements and to simplify its legislative and administrative procedures. In 2006, the first Simplex Programme (0 Simplex) was launched with the aim of:
Providing prompt and effective responses to the needs of citizens and businesses;
Increasing people’s trust in public services and servants;
Enabling businesses to quickly obtain permits and authorisations; and,
Helping to reduce the costs of economic activities (Office of Public Services Reform, 2006[16]).
The programme was based on the principle that the government must foster a better business culture and environment, namely by accepting a basic level of risk and by reducing the level of regulatory interference in the economy. By 2008, the Simplex programme produced more than 750 reform initiatives, all of which targeted concrete problems identified through stakeholder consultation (OECD, 2008[17]). Many of these reforms were introduced to assess and improve the quality of regulations, for instance by eliminating the need to request and present certain certificates. This measure reduced the time and cost associated with requesting certificates – often from multiple government agencies – and streamlined the administrative process into an online permanent trade registry certificate.
In 2016, the Simplex Programme (Simplex+2016) was re-launched following the passing of Resolution 31/2014, which promoted Simplex to a national programme that covered all measures of de-bureaucratisation and administrative simplification (Simplex, 2022[18]). The programme is updated yearly to ensure that initiatives are being properly monitored and evaluated and objectives are being met. Moreover, each edition is based on certain policy axes and identifies areas in which to development measures. The Simplex 2020-2021 programme focussed on two axes: Better Public Service and More Modern Public Administration, which included a total of 158 measures. One particular regulatory issue that was identified through the 2016 programme cycle was that licensing procedures were particularly cumbersome and hard to navigate for MSMEs and start-ups in Portugal. As a response, more than 1 000 procedures had been de-materialised (i.e. made available online) through the revision of 163 laws and regulations by mid-2016 (OECD, 2020[12]).
The example of the Simplex programme in Portugal provides insights into how Egypt could introduce initiatives that would allow for the co-ordination and streamlining of regulations, programmes and policies, as well as for the monitoring and evaluation of these initiatives across public agencies and departments.
Description of approach
The reform of investment licensing and inspections in Greece aimed to simplify the business environment through a major shift from ex-ante to ex-post authorisations, focusing on efficiency and results-driven processes. The reform was structured around three key pillars:
Licensing Reform: The core objective of the Licensing Reform, guided by Law 4442/16, is to create a unified approach to regulating the licensing of economic activities in Greece. Central to this is a new notification process replacing traditional licenses based on a risk-approach. Businesses can now notify the start of their operations without waiting for administrative approvals, provided they comply with existing legislation. This shift particularly benefits SMEs by removing delays and simplifying compliance processes. The success of the initiative is built on collaboration among ministries and agencies, organised through a phased strategy to ensure effective implementation.
Inspections Framework: Following the licensing simplification, Law 4512/18 established a new legislative approach to inspections for economic activities and products. Historically, inspections in Greece suffered from inefficiencies due to fragmented planning, overlapping responsibilities, and inconsistent practices. The reformed framework addresses these issues by adopting modern tools such as risk-based inspections, standardised checklists, and improved co-ordination among authorities. This comprehensive strategy emphasises compliance over punitive enforcement, fostering a more cooperative and responsible business climate while protecting key domains of public interest: public health, consumer protection, products safety, food safety, environmental protection, public health, occupational safety, infrastructure safety.
OpenBusiness Management System: OpenBusiness is a digital platform integrating the management of notifications, approvals, and inspections. The system aims to transform public administration by offering a transparent, reliable, and streamlined operational environment for businesses. Key features include the ability to access relevant data instantly, documentation of processes for increased transparency, and interoperability with other central digital systems in Greece. OpenBusiness reduces complexity and processing times for economic operators and public authorities, enhancing overall efficiency and collaboration. OpenBusiness also acts as a central hub for disseminating information on licensing and inspection procedures, empowering businesses and citizens with immediate access to necessary conditions for economic activities. Since 2017, a transitional system focusing solely on notifications has been operational, setting a precedent for the platform's anticipated full functionality.
Success factors
A significant factor in the success of the project has been the sustained commitment of the Greek government to simplify the business environment. The initiative started in 2016 with the simplification of licensing in the manufacturing sector and was subsequently extended to other sectors of the Greek economy such as tourism, restaurants and cafes, logistics, transport, education and training, social care, and convention and trade centres. The sustained and unwavering political commitment and the dedication of the relevant public services to achieving the goal have been the most important factors for its success.
Relevance for Egypt
The implementation of a similar approach to simplifying the licensing requirements for SMEs could contribute significantly to improving the business environment in Egypt and reduce the particularly widespread phenomenon of informal entrepreneurship. Furthermore, a digital business licensing platform will help reduce the licensing costs for SMEs, which are particularly high in Egypt, and contribute to promote and further support start-ups and small-scale entrepreneurship, therefore creating sufficient conditions for the improvement of competitiveness in the long term.
Co-ordination issues
The Egyptian government has taken a number of steps to alleviate regulatory obstacles to starting a business and improve the overall business environment. These include the aforementioned measures within the MSME Law to simplify registering and licensing procedures and the establishment of GAFI’s online platform for business registration, as well as the creation of an integrated electronic platform for the Golden License and a reduction in GAFI’s documentation requirements.4 In addition, SMEs and entrepreneurs can obtain information on licenses and procedures through government representatives within MSMEDA’s One Stop Shops. However, licenses are still issued by a high number of different government entities, and there is a lack of a centralised platform where MSMEs and entrepreneurs can apply for multiple licenses. The larger challenge for MSMEs and entrepreneurs relates to regulatory hurdles encountered once they have registered their business and begun operating. Currently, the high number of government institutions, each with a large, and often overlapping mandate, creates an operating environment in which SMEs and entrepreneurs are frequently required to liaise with a multitude of government actors. A consolidation of touch points for SMEs across different public entities is needed to reduce regulatory obstacles in the operating environment. Information on business licenses can be obtained through MSMEDA’s website, while the Federation of Egyptian Industries has a one-stop shop that provides advice, registration, and tax services with a focus on MSMEs in industrial sectors. There is not currently, however, a centralised online platform where SMEs can go to submit and track their different license applications (see Box 3.4). Greater communication and co-ordination between public entities is also needed to ensure that the information and guidance provided to SMEs and entrepreneurs is up to date and accurate. A reduction in the overall cost of compliance should be a priority.
Singapore is a country that has had success in reforming its business registration and licensing system. Today, Singapore is ranked as the fourth easiest country to start a business and has a high rate of new business registrations (World Bank, 2020[5]). However, in the late 1990s, starting a business involved a high number of onerous and complex procedures spanning multiple regulatory agencies (World Bank Group, 2019[19]). The Online Business Licensing Service project (OBLS) was introduced to address these issues by creating a one-stop shop for business registration and licensing. The OBLS project involved a review of existing business licenses across multiple regulatory agencies, in order to identify opportunities to remove or combine licenses where there was overlap or duplication. In other cases, licensing requirements were made less onerous, for instance by removing renewal requirements or switching from an approval requirement to a notification requirement. A review of each individual license was also conducted, based on the following considerations (Pelly Periasamy and Sia, 2007[20]):
What is the rationale of the license?
What are the requirements for approval of this license? Why?
How often are these requirements waived? Why?
Is there a need for physical check before the issuance of license? Why?
What is the fee charged for the license? Why?
Is there a need to meet the applicant in person? Why?
How often is an application rejected? Why?
How often is enforcement conducted? How often have violators been caught?
The OBLS programme culminated in the launch of an integrated online portal through which companies could apply for multiple licenses through a single application. The OBLS platform was subsequently replaced with the LicenseOne platform and later by the Go Business Licensing platform, which offer additional functionalities such as the ability for users to track their current and previous transactions.
A distinctive feature of Singapore’s Go Business Licensing Platform is the ability to apply for numerous licenses with a variety of different regulators through a single application within the centralised portal. Although some licenses must be applied for through regulators’ separate websites, data entry requirements have been reduced through the use of the Singpass login. This facilitates co-ordination and information sharing across different entities. License renewal requirements can also be tracked via the Go Business Licensing Platform portal, and there is often the option to pay for multiple years of renewals upfront.
The OECD Recommendation on SME and Entrepreneurship Policy emphasises the importance of governments supporting access to a diverse range of financing instruments. The Egyptian authorities have been very pro-active in taking steps to ensure that more Egyptian SMEs and entrepreneurs have sufficient access to a diversity of financing instruments. Further efforts are needed in this direction in order to address SME financing gaps, which currently mean that a majority of SMEs in Egypt rely on internal resources and informal sources to finance their investments and operations (World Bank, 2020[21]).
Bank finance
Bank lending to SMEs has historically been very limited, although recent policy interventions are helping to change this and Egyptian banks’ MSME lending portfolio has grown by 394% between December 2015 and March 2024. According to the results of the World Bank Enterprise Survey, 80% of Egyptian businesses with 5-19 employees and 93% of businesses with 20-99 employees had a bank account in 2020 (World Bank, 2020[21]). However, the proportion of investment financed by banks among Egyptian businesses with 5-19 employees was, on average, 7.3% in 2020, compared to a figure of 12.9% in Tunisia in 2020 and 11.3% in Morocco in 2019.
While data are not available on the value of banks’ lending to SMEs in Egypt, the data published by the Egyptian Credit Guarantee Company (CGC) provide some indication of the scale of activity. The CGC’s portfolio of guaranteed loans amounted to 2.8% of GDP in the 2021-22 financial year and accounts for 43% of banks’ total lending to SMEs. These figures imply that, even if hypothetically all of CGC’s guaranteed loans were issued to SMEs, the value of the stock of outstanding bank loans to SMEs in Egypt would stand at just 6.5% of GDP. This figure is very much a theoretical maximum, since a significant portion of the CGC’s guaranteed loans are in fact directed towards large companies. For comparison, the value of the outstanding stock of business loans was above 40% of GDP in South Africa and Türkiye in 2020.5
Note: Data for Egypt were collected in 2020 and responses may therefore be impacted by the COVID-19 pandemic.
Source: (World Bank, 2020[22])
There are opportunities to improve MSMEs’ access to bank finance by addressing the following supply side issues:
Lack of tools and data to assess MSMEs’ credit risks: Many Egyptian MSMEs lack (reliable) financial statements and have a limited credit history. This creates information asymmetries which make it more difficult for banks to assess the creditworthiness of smaller clients. In countries like Egypt, these challenges are compounded by the fact that many MSMEs operate in the informal sector, meaning they lack the appropriate documentation to seek financing from financial institutions. Stakeholders also report a lack of expertise and knowhow within banks regarding how to service the MSME sector, stemming in part from the fact that banks’ interactions with MSMEs and entrepreneurs have historically been fairly limited. Another potential contributing factors is a lack of competition within the banking sector.
Collateral requirements: In Egypt, a much larger share of loans require collateral than is the case in other countries in the region (Table 3.1). These collateral requirements represent a particular challenge for women entrepreneurs and women-owned SMEs, as their property ownership is considerably lower compared to men.6 While Egyptian banks’ lending decisions are primarily driven by historical and projected cash flow, collateral also has value in enabling access to finance if frameworks and institutions are in place that adequately measure, keep track of and enforce collateral. In Egypt, weaknesses in property rights registration, titling, and valuation poses a challenge for financial institutions. For example, even when properties are registered, the absence of valuations can make it difficult for banks to extend credit.
On the demand side, there is a need to build trust between MSMEs and banks in order to encourage greater engagement. Another bottleneck are know-your-customer (KYC) requirements, which impose sizeable compliance costs for both banks and their SME customers, although the Central Bank of Egypt (CBE) has taken important steps to address this issue, including the simplification of KYC requirements in 2021 which now allow for the opening of accounts for professionals and very small businesses with only a National ID as means of identification. Geographical factors could also play a role. Egypt has a lower density of bank branches than other MENA countries, which may contribute to MSMEs’ low utilisation of bank finance. Limited financial literacy further constrains demand for bank finance, particularly outside of urban centres and among female-headed households and businesses. For example, only about 60% of women-headed households were aware about basic financial products (IFC, 2022[23]). These issues are considered in the CBE’s financial inclusion strategy and upcoming financial literacy strategy.
The Central Bank of Egypt (CBE), which is the regulator of Egypt’s banking system, has rightly emphasised the importance of expanding SMEs and entrepreneurs’ access to bank credit. In recent years, it has been pro-active in taking a number of substantial measures designed to stimulate bank lending to SMEs:
SME lending quotas: In 2016, the CBE directed banks to allocate 20% of their total loans to SMEs. This quota was increased to 25% of total loans in 2021, with at least 10% to be allocated to small companies. Progress is periodically monitored by the CBE, with the CBE also requiring that banks prepare integrated strategies with timelines and action plans to ensure that they meet these quotas.
Capacity building: The CBE has obligated all banks to establish a dedicated MSME department with responsibility for SME lending. To ensure that these departments have the necessary expertise and skills to support SMEs, the CBE’s training arm (the Egyptian Banking Institute) has also developed a certification programme in co-operation with the Frankfurt School of Finance that provides training and qualifications for dedicated SME staff within the banking sector. This is designed to provide banks’ staff with the knowledge and capabilities required to serve the needs of SME clients
Regulatory easing: In 2021, the CBE instituted a regulatory amendment which allowed banks to finance small businesses with annual sales less than EGP 20 million without having to obtain audited financial statements and to use alternative data to evaluate customers through digital evaluation models.
Credit assessment methodologies: The CBE has directed banks to develop alternative tools to assess the risks of lending to micro, small and/or informal enterprises, making use of alternative data sources for credit assessment.
Data access: The Egyptian Credit Bureau (i-Score) is in the process of developing a data hub with credit information on Egyptian businesses and consumers, which has the potential to be an important tool that addresses existing challenges surrounding credit risk assessment and SME lending. The CBE has obligated banks to report their data to i-Score in order to support the development of this platform. These efforts appear to be bearing fruit, with i-Score reporting that nearly 100% of credit data on SMEs and individuals from commercial banks in Egypt is now held in the database. Moreover, World Bank data indicate that the number of individuals or firms listed by the Bureau reached 31.3% of the adult population in 2019, which is nearly triple the average (11.3%) among non-high-income countries in the MENA region. However, the gap between the number of individuals and firms in the i-Score database and the total population of Egyptian individuals and firms, despite i-Score having nearly all credit data from commercial banks, highlights the relatively limited reach of the banking sector in Egypt.
Credit guarantees: The CBE is and the main shareholder of the Credit Guarantee Company (CGC) Egypt. In the 2021-22 financial year, the value of the portfolio of loans guaranteed by the CGC was EGP 284 billion, of which EGP 195 billion was guaranteed by the CGC.7 This credit portfolio was spread across 206 000 beneficiaries. The value of government guaranteed loans in Egypt amounts to approximately 1.9% of GDP, which is higher than in most OECD countries for which data are available with the exception of Korea, Portugal and Hungary (OECD, 2021[24]).
By reducing the risks faced by banks in lending to SMEs, the CGC is a very important actor in the SME lending space. Indeed, 43% of banks’ total lending to SMEs came via the CGC in the 2021-22 financial year. The CBE provided an initial support to the CGC by establishing a EGP 2 billion guarantee trust to cover part of the credit risk guarantee associated with bank lending to existing and newly-established SMEs and start-ups as well as by issuing regulations providing special treatment for CGC guarantees. However, the CBE’s support to the CGC does not appear to be focused exclusively on SME lending, with a CBE initiative in 2020 making EGP 7 billion of funding available to the CGC for the issuance of guarantees to large companies.8
Know-your-customer requirements: The CBE is seeking to ensure that businesses are only required to submit KYC documentation to a financial institution once, with this information subsequently made available to other institutions. This could be an important way of reducing the administrative burden that SMEs and entrepreneurs face in creating accounts with commercial banks.
Given the lack of engagement that commercial banks have historically had with the SME sector in Egypt, it is important that strong actions are taken initially to initiate a shift in approach. With that being said, the introduction of lending quotas alone may not tackle the underlying factors that are stifling bank lending to SMEs, which could include a lack of credit data, high default risks, onerous loan recovery processes, or a lack of expertise and knowhow within commercial banks on the needs of the SME sector. For this reason, the other measures that are being taken, such as the efforts to increase the availability and reliability of SMEs’ credit data and to reduce lending risks through risk-sharing arrangements will be key to achieving long-term and sustained increases in commercial banks’ share of lending to SMEs. To accelerate progress in this area, there could be scope to scale up the support provided by the credit guarantee scheme, as described further in Chapter 4 of this report on SME and Entrepreneurship Programmes. The range of products offered by the of the CGC could also be diversified to include more tailored products that align with the specific financing needs of certain groups of businesses, for example innovative start-ups or SMEs in priority sectors.
The Financial Regulatory Authority (FRA) regulates activities within Egypt’s non-banking financial sector. Under the umbrella its support for SME financing in the non-banking sector, the FRA has issued licenses to nine SME financing companies and one NGO.
The initiatives of the CBE and FRA have been effective in stimulating an expansion in the SME lending operations of public banks. Progress has also been made with respect to private banks, with most having achieved their mandatory ratios on the share of their lending to SMEs and many establishing dedicated SME units to better serve SME clients. Continued efforts to bolster the capacity and appetite of private banks to serve the SME market and at the same time raise awareness of and interest in bank financing opportunities among SMEs would help to maintain this positive momentum. The FRA is also supporting SME financing in the non-banking sector, with nine companies and one NGO having been granted licenses to finance SMEs.
Another important factor affecting access to bank finance is the ability of SMEs and entrepreneurs to leverage their assets as collateral. Stakeholders report that property registration issues are a significant problem in Egypt, with many properties unregistered due the complexity of the processes involved. In 2022, Egypt introduced a new real estate registration law that aims to streamline the property registration process. For example, the new law separates the processes of registering property and paying real estate excise taxes, and also removes the requirement for to provide evidence of a property’s chain of custody.9 These steps should improve access to finance by enabling more SMEs to register their properties and use these as collateral for loans. It will be important to monitor the implementation and impacts of the new registration law over time to ensure that it is having its intended effects on the share of properties being registered. Measures have also been taken to facilitate the collateralisation of moveable assets. In partnership with i-Score, the FRA launched a registry of moveable collateral assets in 2018, which allows capital equipment and intellectual property to be used as collateral in order to support SME lending.10
Microfinance
Microfinance often plays an important role in plugging financing gaps left by the banking sector. This is particularly relevant in the case of Egypt given the large number of unregistered and/or unlicensed enterprises. In 2014, Egypt passed its first law to regulate microfinance services.
The lending ceiling for microloans was initially capped at EGP 100 000, although the Financial Regulatory Authority (FRA) – which regulates microfinance activities in Egypt, as well as capital markets and non-bank financial institutions more broadly – has since raised the cap to EGP 242 000. The 2020 amendment to the microfinance law (Law No. 201 of 2020) also sets out provisions to increase the limit by up to 10% annually. The FRA issues licenses to practice in microfinance to non-governmental organisations (NGOs) and private companies. There are currently more than 1 000 NGO MFIs and 22 private companies that have been granted a license, operating across approximately 3 700 physical locations across Egypt.
The FRA designates three categories of microfinance organisations:
Category A: NGOs with a portfolio of EGP 50 million or more (1.8% of the intermediaries in the three categories, but 87.9% of the total loan portfolio and 50.6% of the active clients)
Category B: NGOs with a portfolio of EGP 10 million to EGP 50 million
Category C: NGOs with a portfolio of less than EGP 10 million (under EUR 300 000)
Since the passage of the microfinance law in 2014, the value of the outstanding microfinance portfolio has increased dramatically, reaching EGP 93.4 billion in March 2024, across both banking and non-banking financial institutions. This growth of the microfinance sector is a side-effect of the CBE’s SME lending quota, which initially permitted banks to meet their allocation either by financing SMEs directly or by investing in MFIs. Currently, banks continue to invest in MFIs, but the share of the SME lending quota that can be met through investing in MFIs is now capped at 2.5%.
To further expand the availability of microcredit, the 2020 amendment to the microfinance law permitted non-banking institutions to lend to SMEs (newly established small and medium enterprises that have been established, registered or active for no more than two years, and according to the relevant definitions for industrial and non-industrial SMEs as per the MSMEs Law 152/2020). Obtaining a license requires the institution to meet certain technical requirements and to have a credit risk rating system, which is assessed by the FRA during the licensing review process. As of March 2023, five MFIs (four private companies and one NGO) are licensed to issue finance to SMEs, with a portfolio size of EGP 2 billion spread across 2 000 SMEs. There is no ceiling on the amount that licensed lenders can issue to each borrower. The reported benefits of obtaining finance through this alternative channel include the speed of the application and approval process, less complex collateral requirements and better outreach relative to banks.
Efforts are underway to digitalise microfinance activities, with the FRA having mandated that all transactions between MFIs and banks be carried out through digital channels. There are many benefits that digitalisation can bring to both microfinance providers and customers, particularly in remote rural areas. These include the cost and time savings associated with reducing the number of required visits to physical branches. However, the use of cash remains deeply ingrained in the microfinance sector, and it will take time for microfinance customers to build the financial skills and experience necessary to switch from cash transactions. Another development that could make microfinance more accessible in the future would be the spread of e-signatures, which are not widely used in Egypt but could significantly lower transaction costs.
In order to strengthen the role of the microfinance sector in supporting access to finance for SMEs and entrepreneurs in Egypt, it is important to bolster the performance and efficiency of the large number of Category C microfinance organisations. This can be achieved through capacity building initiatives and support to help them meet regulatory requirements, as described further in Chapter 4 of this report. Consideration should also be given to creating a licence for microbanks, which would enable the most qualified microfinance institutions to become microbanks that are authorised accept deposits from clients. This could help the institutions to support their clients with larger loans and a wider service offering.
Equity finance
While there is no official data source for venture capital investment, with estimates varying depending on the definitions, information sources and methodologies, available estimates indicate that venture capital funding in Egypt has risen dramatically in recent years, as shown in Figure 3.2, with a number of private equity funds that invest primarily in larger-stage high-potential enterprises. A recent study by Disrupt Africa found that the amount of venture capital funding received by tech start-ups in Egypt in 2022 was the second highest in Africa both in terms of the number of tech start-ups funded (131) and the volume of funding received (USD 812 million) (Disrupt Africa, 2022[25]). Despite these impressive figures and promising trends, there remains considerable scope for further development of Egypt’s venture capital market.
The top five sectors in terms of funding received were fintech, e-commerce, e-health, logistics and marketing. This includes the USD 150 million raised by Egyptian fintech platform MNT-Halan. These start-ups collectively employed 11 153 people in Egypt, highlighting the significant benefits they can bring to the wider Egyptian economy.
The growth of venture capital investment in Egypt has been supported by instructions issued by the CBE in May 2019 and later amended in February 2021 which allowed banks’ investments into funds that aim to invest in SMEs and start-ups to contribute towards the requirement for 25% of their lending to be directed towards MSMEs.
Angel investment also provides opportunities for innovative start-ups in Egypt. For example, the American University of Cairo (AUC) Venture Lab has an angel investment network comprising approximately 50 investors. Over the past three years, 26 investments have been made through this network. Other angel investment networks that are active in Egypt include Alex Angels, Mediterranean Angels, and Tiye Angels, which focuses on women entrepreneurs. However, the pool of angel investors is relatively small in Egypt, and those that are active are reportedly close to their investment capacity at present.
Although Egypt’s start-up financing ecosystem is very competitive when compared to other start-up hubs in Africa, there remains considerable scope for progress. Indeed, the Global Entrepreneurship Monitor’s 2022 National Expert Survey finds that the availability of funding for start-ups in Egypt is notably lower than in higher income countries (Global Entrepreneurship Monitor, 2023[27]). Many countries deploy special tax incentives in order to encourage private investors and venture capital firms to invest in new start-ups and early-stage enterprises by reducing the risks for investors. The introduction of tax incentives for private investors who provide funding to Egyptian start-ups could help to accelerate the growth of Egypt’s start-up financing ecosystem and reduce its dependence on public backed initiatives. It is also important to increase co-ordination among different actors within the start-up financing ecosystem. In particular, creating a networking platform to connect angel investors and venture capital firms would help to create a more continuous pipeline of funding opportunities for start-ups in Egypt, from the seed stage to the growth stage.
An effective system for private investment in start-ups and high-growth potential SMEs also provides channels for investors to exit from through investments. For example, angel investors may seek to earn a return when the investee firm secures venture capital, while venture capital investors may desire opportunities to cash out when the firm is acquired or obtains a listing on the stock exchange. The secondary listing on the Egypt Stock Exchange, NILEX, offers an option for firms to undertake an initial public offering with relaxed listing rules. However, there has been a low level of activity on NILEX since its launch in 2007, with only 17 listed SMEs in 2023. This indicates that SMEs continue to face barriers to listing on the stock market. Stakeholders identified the volatility of Egyptian capital markets as well as complex regulations as barriers to listing.
Alternative sources of finance
The remote nature of many parts of Egypt, in addition to Islamic finance rules that prohibit certain financial activities such as the payment of interest on loans, creates a space for alternative source of finance. These include Rotating Saving and Credit Associations (ROSCAs) and crowdfunding initiatives. The CBE and FRA are currently working together on a law that would facilitate these alternative financing models, which could alleviate funding gaps in many parts of the country. Pending the outcome of the ROSCA Regulatory Sandbox pilot, the regularisation of ROSCAs by the FRA may offer a viable option for informal enterprises and individuals who do not have access to the formal financial market.
Leasing and factoring are another source of funding with a high amount of potential in Egypt. For example, “leaseback” products are being used by factories and services companies to provide fast access to working capital. With that being said, leasing and factoring activities are relatively new and underdeveloped in Egypt, and further growth is currently limited by high interest rates. MSMEDA can do more to raise awareness among SMEs of the merits of leasing options for the purchase of capital equipment and of factoring services to improve their cashflow. In parallel, it is also important to build awareness among leasing and factoring companies of the potential of the SME sector as a market for their products and services.
Research inputs
Egypt is allocating a growing share of resources towards innovation. A key metric that reflects the focus an economy is placing on innovation is the level of expenditure on research and development (R&D). This is an area where Egypt has improved significantly in recent years. In 2008, R&D expenditures amounted to just 0.3% of GDP, compared to a global average of 2.0%. To address this challenge, the Egyptian Constitution of 2014 mandated that the government allocates to scientific research an amount that is at least equal to 1.0% of GDP, with a commitment to gradually bring Egypt’s R&D expenditures as a share of GDP towards the global average. Egypt reached the targeted 1.0% of GDP R&D expenditure in 2020 (Figure 3.3). However, despite the improvement, further progress is needed to align with the global average figure of 2.6% in 2020 (UNESCO, 2023[28]).
Source: (UNESCO, 2023[28])
Egypt has made strong progress in increasing its number of researchers. Indeed, the number of researchers per million inhabitants has nearly doubled over the past 10 years from 492 in 2011 to 854 in 2021, as shown in Figure 3.4 below. This impressive growth trajectory has seen Egypt surpass the average for middle income countries, despite Egypt being classified as a lower-middle income country.
Source: http://data.uis.unesco.org/#
Research outputs
The growth in R&D spending and the rising population of researchers will have strengthened the research output of Egypt’s higher education institutions. Eight of the 25 highest ranked universities in the MENA region in terms of citations are based in Egypt. Only Saudi Arabia has a higher number in the top 25 (Times Higher Education, 2022[29]). Egypt is a heavy hitter in terms of its research output. In 2021, Egypt came 26th in the world in the number of published documents and 25th in the world in the number of citations (Scimago JR, 2021[30]). In certain fields, Egypt’s ranking was even more impressive. For instance, Egypt is a top 20 ranked country in citations in chemical engineering (ranked 15th in 2021), chemistry (16th), energy (19th), dentistry (20th), engineering (17th), materials science (16th), mathematics (19th), pharmacology (14th) and veterinary science (9th). The high volume of research output being developed in Egyptian institutions provides strong foundations for the wider innovation system.
Research commercialisation
A key challenge for Egypt’s innovation system is to direct research being conducted in higher education institutions (HEIs) towards the market. One way of measuring the conversion of scientific research into commercial outputs is patent applications. Data from the World Intellectual Property Organization show that Egypt had 9 resident patent applications per 1 million people in 2021. This figure is strong relative to other regional countries and countries with similar income levels. However, the strength of Egypt’s research base suggests that there is the potential for Egypt to perform even better with respect to patenting activity. Indeed, in absolute terms, Egypt had the 37th highest number of resident patent applications in 2021, which, while impressive, is lower than Egypt’s global ranking in terms of the number of published documents (26th) and citations (27th).
Researchers in Egypt appear to have a positive disposition towards entrepreneurship, with a commitment to applying their research in support of the country’s economic development. There are also a range of high-profile awards and innovation competitions in Egypt, such as “Cairo Innovates”, “Egypt First Innovator”, and “Ebtaker”. A key barrier to research commercialisation and the creation of university spin-outs is therefore not a lack of interest or opportunity but rather a lack of tailored support (OECD, 2025[31]).
The 2019 update to Egypt’s Strategy for Science, Technology and Innovation 2030 identifies the creation of stronger linkages between academia and industry and clearer and more unified mechanisms for marketing scientific research outputs towards the private sector as areas for future improvement. While some major Egyptian universities have dedicated technology transfer offices in order to support research commercialisation, researchers need further skills and awareness in order to commercialise their research. The government could strengthen research commercialisation through policies to incentivise researchers to create their own start-ups, as well the creation of more funding opportunities (see Box 3.5).
Innovation and entrepreneurship is an important pillar of the Ministry of Higher Education and Scientific Research’s (MHESR) strategy. Three entities within the MHESR that are working to promote entrepreneurship are:
1. The Academy of Scientific Research and Technology (ASRT), which acts as a compass for R&D in Egypt, conducting market research to identify what is needed from Egypt’s innovation system. The ASRT also provides grants to support early-stage research (up to technological readiness level 3).
2. The Science and Technology Development Fund (STDF), which funds infrastructure and training on how to use research equipment, and also provides funding for early-stage businesses.
3. The Innovation Support Fund (ISF), which focuses on investing in promising enterprises in order to take them to the market. The ISF’s activities are designed to address existing funding gaps for projects that are at a technological readiness level of 3 or higher, but are not yet mature enough to attract venture capital investment (the so-called “valley of death” that is observed in many countries). The ISF has two main programmes:
a. Improving the entrepreneurship skills of researchers. This programme provides education awareness programmes for researchers to make them more business oriented and better understand commercial processes. The aims are to create a small number of potential entrepreneurs and create a greater awareness of entrepreneurship among the wider population of researchers. The programme seeks to replicate a similar initiative overseen by the National Science Foundation in the United States. Efforts are being undertaken to tailor the programme to the Egyptian context, taking account of cultural factors and the more limited entrepreneurial experience and knowledge of Egyptian researchers.
b. Funding for commercialisation of R&D output. The ISF funds research commercialisation through two channels. The first is working with technology transfer offices (TTOs) in universities to establish licensing or royalty agreements with researchers. The second is to identify researchers with entrepreneurial potential and to invest in these researchers’ start-ups.
This structure represents a good model for supporting the commercialisation of R&D in Egypt’s innovation system at various different levels of technological and/or commercial maturity, although many of the initiatives are relatively new and are being conducted on a relatively small scale.
Efficient innovation ecosystems increasingly rely on collaboration between academia and industry. It is therefore important that Egypt incentivises academic institutions as well as individual academics to partner with the local business community and commercialise their research.
The approach of the Italian National Agency for the Evaluation of the University and Research Systems (ANVUR) provides a potential learning model for Egypt. Since its creation in 2006, ANVUR has endeavoured to analyse and evaluate activities that extend beyond peer-reviewed research and teaching. It classified third mission activities according to a broad definition, including activities related to the valorisation of research as well as activities that generate a spillover effect to the wider society.
After the classification exercise, the evaluation of third mission activities was formalised in an official manual with a set of criteria, indicators and evaluation questions. This allowed the collection of standardised and comparable data on all the universities involved in the evaluation exercise. This was conducted in partnership with the Ministry of Education, University and Research, and in a consultative process with a panel of experts. Some examples of the indicators outlined in the manual are:
The number of assignments, licenses, or options contracts divided by the total number of university patents.
The number of spin-out companies using university patents divided by the total number of university patents.
Total revenues divided by the total number of university patents.
The collected information was then used as an input for the overall evaluation of the performance ofb HEIs in Italy (in a separate chapter and in an experimental manner). The broad, thorough, standardised and consultative approach ensured broad agreement among HEIs in Italy about their participation in third mission activities, and may be a stepping stone to take further action. So far, the evaluation of third mission activities has not been used in the funding formula of the ministry. However, there is still a demand among many participating organisations to link performance in third mission activities more explicitly and structurally with funding so as to provide financial incentives.
In addition, a wide variety of funding schemes have been introduced to encourage increased interactions between MSMEs and universities with TTOs typically playing a leading role in the implementation of these schemes. Both the number, size and activities of TTOs has increased substantially between 2008 and 2018. Over that period, Italian universities have spun-off about 110 research-based firms per year, on average.
There are also legal impediments to the commercialisation of research in Egypt. Before 2018, government employees – including researchers in public universities – were prohibited from leading a commercial entity. A law passed in 2018 now allows university researchers to work with the MHESR to create incubators or technology parks where they are authorised to conduct commercial activities. However, restrictions on the commercial activities of researchers remain more stringent than in countries such as the United States.
The ISF has been working to encourage universities to establish clear IP policies, including by creating an initial template for universities to refer to. As of March 2023, approximately 10 universities had engaged with the ISF to set up an IP policy. There is also a push to establish a legal requirement for universities to each have a vice president responsible for innovation and entrepreneurship. These measures are important since prior to 2023, most universities did not have functional policies, which represents a major bottleneck to the commercialisation of university research and the creation of university spin-off companies.
Co-ordination within the innovation system
Many public entities are involved in the provision of support for innovation and entrepreneurship. However, interviewed stakeholders reported that there is scope to improve communication and co-ordination between these different organisations. This would make it easier for researchers and entrepreneurs to understand the breadth of support options available and where they can go to access this support. At present, researchers and entrepreneurs who look for support will encounter a high number of potential government entities, without clear differences in the roles of these organisations. There is therefore a need for a central, responsible entity that works with all of these government actors to create a single platform that links the various policy initiatives underway in the innovation system. Co-ordination issues within the innovation system also create difficulties in the design and implementation of laws. For example, relevant entities are not always informed of legal changes initiated by other parts of government. Interviewed stakeholders also raised the issue that new laws are not always consistent with existing laws and regulations, for example in the case of legal changes to allow university researchers to open incubators. This creates challenges with implementation.
Educational attainment
Egypt has made vast progress in raising access to education in recent decades, with a transformational impact on workforce skill levels in the years that followed. The Egyptian Constitution guarantees the right to free and compulsory education to all Egyptian children aged 6 to 15 years. In the early 1970s, more than a third of primary school age children were not enrolled in primary school. Fast forward to the present day and this deficit has largely been eradicated, with a net primary school enrolment rate of 98% in 2018. Turning to secondary school education, only around a quarter (26%) of secondary school age children in Egypt were enrolled in secondary school in 1971. By 2018, this share had risen to 83%. This is above the average for the MENA region, whose net secondary school enrolment rate was 73% in 2018. However, further progress is needed to converge to the OECD average of 89% net secondary school enrolment.
Over the past decade, there has been a steep rise in the number of young Egyptians going into tertiary education. Indeed, the tertiary enrolment rate (TER) increased from 27% in 2011 to 39% in 2018, a trend which saw Egypt surpass many other countries in the region such as Tunisia and Jordan. Egypt is therefore on track to meet the targeted TER of 40% by 2030 that is set out in the National Strategy on Higher Education Development (published in 2016 by the Ministry of Higher Education and Scientific Research).
While Egypt has been successful in raising education participation rates, it is also important to ensure that the education provided within schools is of a high standard. An important metric here is the number of pupils per teacher, which is a proxy for the investment in and quality of education. In Egypt, the pupil-teacher ratio at the primary level was 24 in 2018, which is slightly above the MENA average of 21 pupils per teacher and the OECD average of 15 pupils per teacher. Egypt’s pupil-teacher ratio at secondary level was 15 in 2018, in line with the MENA average and marginally above the OECD average of 14. In Egypt, the average classroom density (pupils per classroom) in public schools reached 51 in 2019/20, which brings about significant disruption to lesson scheduling and delivery (M. A. Zaki Ewiss, 2021[32]). These results indicate that further investment is needed to expand capacity. This need is reflected in Egypt’s Sustainable Development Strategy, which targets a reduction in the average number of pupils per classroom to 35 by 2030 (Ministry of Planning, 2015[33]).
There is room for improvement in Egypt’s performance on international metrics of educational achievement. According to the results of the 2019 edition of the Trends in International Mathematics and Science Study (TIMSS), mathematics achievement among grade 8 pupils was below that observed in other middle-income MENA countries such as Jordan, Lebanon and Iran (TIMSS & PIRLS International Study Centre, 2020[34]). While the mathematics achievement scores were broadly stable over time, Egyptian pupils’ scores in the science component declined between 2003 and 2019.
The reduction in the number of out-of-school children has led to a significant increase in literacy rates in recent decades. Among those aged 15-24, literacy rates increased from 51% in 1973 to 92% in 2021. However, there remains a gap in youth literacy rates in Egypt and other comparable countries in the region such as Morocco and Tunisia, where the youth literacy rate was 98% in 2021. In 1976, the adult literacy rate in Egypt was just 38%. By 2012, this share had soared to 74%. However, progress in this area has since stalled, with the adult literacy rate dipping to 73% in 2021. Importantly, the gender gap in literacy rates has narrowed significantly, with the female adult literacy rate more than tripling between 1976 and 2021, when it reached 67%.
Workforce skills
Improvements to the education system twinned with a demographic dividend have boosted businesses’ access to skills. Between 1988 and 2008, Egypt experienced a marked decline in the total fertility rate, due to strong investments in family planning and reproductive health. This means that Egypt is now benefitting from a so-called “demographic dividend”, where a growing share of working-age people in the population increases national productivity and per capita income. In 1988, 46% of Egyptians were either aged below 15 or above 64. This compares to a figure of 38% in 2021. The growth of the working-age population provides greater opportunities for local SMEs to access the skills they need to succeed. There are also encouraging data on the skill level of the Egyptian workforce. According to the World Bank Enterprise Survey, only 10.2% of Egyptian businesses with 5-19 employees identify an inadequately educated workforce as a major constraint, compared to a figure of 29.2% in Morocco and 32.4% in Tunisia (World Bank Enterprise Surveys, 2023[35]).
Educational attainment levels primarily affect SMEs and entrepreneurs by shaping the ease with which these businesses can access the skills they need to succeed. Skills are identified as a weakness for Egypt in the World Economic Forum’s (WEF) Global Competitiveness Report (World Economic Forum, 2019[36]), with Egypt ranked 99th out of 141 countries in this area. Egypt performs particularly poorly on the indicator assessing whether students leave school with the skills needed by businesses. On this metric, Egypt ranks 133rd out of 141 countries, pointing to important shortfalls in the ability of schools to prepare young Egyptians for the workplace. During stakeholder discussions, it was also reported that Egyptian SMEs face difficulties accessing key workforce skills, including digital and foreign language skills.
Another factor weighing on the availability of skills in the Egyptian workforce is the relatively low participation of women in the labour force. In 2021, women accounted for just 17.6% of the labour force. For comparison, this figure was, on average, 44.5% in OECD member countries in 2021. Low female participation rates are attributable to cultural factors, particularly in certain parts of the country, as well as gender gaps in digital and financial literacy. It is also reported that female employment is concentrated in traditional sectors such as handicrafts where home working is prevalent, with women less active in other sectors of the economy that are not based on home working.
Only around one in twenty (5.2%) small businesses in Egypt offer formal training to their employees. This share rises to 14.9% among medium-sized businesses and 19% among large businesses (World Bank Enterprise Surveys, 2023[35]). This pattern is commonly observed internationally, with large companies generally more likely to have the resources and capacity needed to invest in improving the skills of their workforce. However, the rates of formal job training among Egyptian employers of all business sizes lags behind other countries in the region. This weighs on the overall skill levels of the Egyptian labour force, with ramifications for businesses of all sizes, including SMEs. Box 3.6 illustrates an approach that governments can use to identifying and addressing skills shortages affecting SMEs in a country.
Skillnet Ireland is a national agency created by the government of Ireland that is dedicated to the promotion and facilitation of workforce capability development, with the aim to advance the competitiveness, productivity and innovation of Irish businesses, focusing mainly on SMEs. The agency is funded by the National Training Fund through the Department of Further and Higher Education, Research, Innovation and Science.
Skillnet Ireland supports businesses in identifying skills that need to be further developed to support their employees and grow their businesses. The agency provides support services that include leadership development and business mentoring, specialised sectoral upskilling, digitalisation programmes, and business network and cluster development. Businesses that are members of the Skillnet Ireland network work with experts to determine their training needs and plan the upskilling activities that best suit their employees. Overall, Skillnet Ireland has funded more than 22 500 companies and provided upskilling activities to more than 86 500 trainees.
The tailored and business-led approach to identifying and addressing skills gaps in specific businesses and sectors facilitates programme optimisation, allowing trained experts to provide individualised solutions and support in developing necessary workforce capabilities. In Egypt, the current lack of investment by SMEs in workforce training could stem from a combination of financial constraints, a lack of training offers, and information gaps on where skills shortages exist. A similar approach to that of Skillnet Ireland could address all of these issues by first helping SMEs to identify skills gaps and then supporting them in finding and funding appropriate upskilling programmes.
The corporate tax rate in Egypt is 22.5%. This is broadly in line with the regional average corporate tax rate, although there are important differences between tax regimes. For example, Morocco has adopted a progressive corporate tax regime, with a tax rate of just 12.5% applied to companies’ taxable income up to MAD 300 000 (EUR 27 521), rising eventually to 32% for taxable income above MAD 100 million (EUR 9.2 million). Meanwhile, in Tunisia, different corporate income tax rates are applied to specific sectors.
Although corporate tax rates are not excessively high in Egypt, they are nonetheless perceived as a burden by many SMEs. According to the World Bank Enterprise Survey (WBES), more than a quarter (26%) of Egyptian businesses with 5-19 employees stated that tax rates were the biggest obstacle they faced. This compares to a figure of 11% across businesses of all sizes in the MENA region. Tax compliance also represents a significant administrative burden for SMEs and entrepreneurs in Egypt, as described in the Regulatory Environment section of this chapter.
The MSME Law 152 of 2020 includes a number of provisions to reduce the burden of taxation for MSMEs. Under the law, micro enterprises are subject to income taxes of EGP 1 000 to EGP 5 000, while small and medium enterprises are subject to corporate income tax of between 0.5% and 1%, depending on annual revenues. This means that, under the Law, businesses with a turnover below EGP 250 000 (EUR 7 419) are required to pay just EGP 1 000 (EUR 30) in income tax. The Law also provides SMEs with an exemption from stamp duty tax as well as exemptions from capital gains tax on the disposal of assets when gains are used for the purchase of new assets within a year. Importantly, these tax incentives are available to informal enterprises that have obtained a temporary 5-year license. Another important measure is the removal of the retroactive application of taxes for formalising enterprises, addressing a key disincentive for formalisation that existing previously. However, while the introduction of the MSME Law is an important step in easing the tax burden for SMEs and entrepreneurs, the greater challenge is ensuring the effective implementation and widespread uptake of the supports and incentives it offers. It appears that the implementation and uptake of some of the Law’s measures have been limited to date.
MSMEDA is currently coordinating with the Ministry of Finance to amend tax incentives for start-ups and SMEs. The government has also announced a new tax reform package to ease the burden on taxpayers. This includes a simplified and integrated system for SMEs and freelancers and accelerated dispute resolution procedures.
For many decades, state-owned enterprises (SOEs) have played a major role across many different sectors of the Egyptian economy. Law Number 61 of 1963 provided for the formation of 53 economic authorities that operate across a number of different sectors, from transport to housing. While data limitations create challenges in measuring the footprint of SOEs, previous studies and estimates indicate that the size and scope of SOEs in Egypt is large by international and regional standards. In 2019, the total value of Egyptian SOEs’ assets equated to nearly half of GDP (IMF, 2021[37]). This is a higher share than in most MENA countries but significantly lower than in some nearby countries such as Morocco, where the value of SOE’s assets is greater than the GDP. Meanwhile, SOEs also account for nearly 4% of total formal employment in Egypt (IMF, 2021[37]). This employment share is significantly higher than in other middle-income MENA countries. For example, the SOE employment shares in Morocco and Jordan are around 1%, while in Tunisia the figure is around 2%. Many of Egypt’s SOEs are in a difficult financial position, with an estimated 38% (107 out of 278) having incurred losses in the 2018-19 financial year. Moreover, a World Bank study estimates that total SOE losses equated to 5.8% of GDP in 2011. The weak performance of Egyptian SOEs can be driven by a range of factors including weak oversight measures, a lack of competition, as well as public mandates such as requirements to provide goods and services at below cost prices or requirements for universal service provision.
The presence of SOEs can negatively impact private sector activity and investment across a range of industries in Egypt (OECD, 2024[3]), thus representing a major obstacle to SME and entrepreneurship development. This is because the various state support mechanisms – which in Egypt include fiscal support, exemptions from public procurement rules and other favourable tax or regulatory treatment – mean that SOEs often operate on an uneven playing field to private sector companies. According to IMF estimates, the provision of fiscal support to Egyptian SOEs amounted to around 1% of GDP in 2019. This is below the MENA average but nonetheless represents a significant fiscal impact. What is particularly striking about the IMF estimates is the lack of contribution that Egyptian SOEs make to budget revenues, meaning that on aggregate they represent a significant fiscal burden.
Actions to reduce the footprint of SOEs in the Egyptian economy would help to stoke competition and reduce entry barriers in many sectors, providing an opportunity for Egypt to increase its alignment with the 8th recommendation of the OECD Recommendation on SME and Entrepreneurship Policy, which focuses on enabling entrepreneurship by reducing entry barriers and fostering competition and growth. The Egyptian government’s state ownership policy, published in December 2022, sets out a variety of relevant measures to improve the situation. Part of the policy includes the identification of economic sectors from which the state will exit in 3-5 years, as well as sectors where the state would maintain or reduce its presence and sectors where the state would maintain or increase its presence. Another important element of the policy is the commitment to promoting competitive neutrality in order to level the playing field between SOEs and private companies. Measures include the formation of a Supreme Committee for the Promotion of Competition Policy and Competitive Neutrality, to be chaired by the Prime Minister. A department dedicated to the promotion of competitive neutrality has also been formed within the Consumer Protection Agency (CPA), the role of which is to receive complaints from consumers or investors and monitor regulations that could harm competition.
The state ownership policy’s implementation follow-up report establishes that the governments has exited from 19 economic sectors. There are 33 public entities owning companies (18 ministries, 9 governorates, the Central Bank of Egypt, the General Authority for Financial Supervision, the Radio and Television Union, the Unified Purchasing Authority, and the Upper Egypt Development Authority, and the Suez Canal General Authority).
It is also important to achieve greater transparency with respect to the performance of SOEs and the government support they receive. Positive measures have been taken in this area, with SOEs to be legally required to submit financial accounts to the Ministry of Finance, which in turn will provide open access to the financial data as well as data on subsidies received by the SOEs. With that being said, there is a concern that many state entities – including military agencies – that conduct large scale economic activities but are not formally registered as companies do not fall within the coverage of recent measures to boost competitive neutrality.
The ongoing efforts to reduce the economic footprint of SOEs and promote competitive neutrality can benefit SMEs and entrepreneurs by creating opportunities for them to become more active in sectors that were previously dominated by SOEs. However, the realisation of these benefits will require the effective implementation of the various measures set out under the state ownership policy. It may also be appropriate to introduce measures targeting SMEs specifically to make them aware of emerging opportunities in these sectors and support them in moving into these markets. Box 3.7 presents Australia’s framework for promoting competitive neutrality, which is among the most comprehensive in the world.
Australia has one of the world’s most comprehensive frameworks in place to promote competitive neutrality and ensure a level playing field between SOEs and the private sector. A key step was defining what constitutes a commercial activity being conducted by government entities, in order to establish which SOEs are covered under competitive neutrality framework. This definition is based on two key questions:
Is the government entity conducting a business? This considers whether the entity charges for goods and services, could potentially compete with other businesses, and whether managers have some independence in production or pricing decisions.
Is the business significant? All government business enterprises, commonwealth companies and business units are considered to be significant under the definition, as well as other business activities being conducted within government ministries or departments with a commercial turnover of at least AUS 10 million per year.
SOEs that are deemed to be conducting a significant business fall within Australia’s competitive neutrality framework. Clearly establishing which Egyptian entities fall under competitive neutrality requirements should be an important priority, given the prevalence of commercial activities conducted by state entities that are not formally registered as enterprises.
After establishing which entities fall within the framework, a number of measures are applied with the aim of levelling the playing field between SOEs and private companies:
Debt neutrality adjustments are applied in instances where SOEs would otherwise have access to credit on more favourable terms than equivalent private enterprises. The adjustments are made through credit evaluations of SOEs by credit rating agencies. These evaluations are made under the counterfactual assumption that the SOE is privately owned. Any calculated reduction in borrowing costs that SOEs benefit from relative to private enterprises are then deducted from their revenues via debt neutrality charges.
Regulatory neutrality adjustments are applied in instances where regulatory advantages held by SOEs cannot be removed through mandating compensatory payments.
Tax neutrality between SOEs and private enterprises is required under Australia’s competitive neutrality guidelines. This can be achieved by ensuring that SOEs fall under the same regime as private enterprises or by mandating the calculation and payment by SOEs of the tax amount that an equivalent private enterprise would be required to pay.
Pricing by SOEs must be such that they earn a commercial rate of return over a 5-year period, based on the weighted average cost of capital. This helps to prevent the undercutting of private sector enterprises.
Dispute resolution is handled through Australia’s Productivity Commission, which administers a complaints mechanism via a dedicated body – the Australian Government Competitive Neutrality Complaints Office (AGCNCO). AGCNCO investigates complaints, which can be submitted by any individual or organisation, on a range of matters including SOEs’ non-compliance with competitive neutrality requirements. Complaints can also be lodged about the competitive neutrality requirements themselves if they are seen to be inadequate in preventing anti-competitive practices or do not cover the entities they should. The complaints office will initially seek to resolve the complaint through discussions with relevant parties. Failing this, a formal inquiry process is initiated, culminating in a public report with recommendations for the government on how to proceed. The Minister responsible for the SOE that is subject to the complaint can then respond by implementing corrective actions.
The case of Australia can offer many transferable lessons and insights for Egyptian policy makers with respect to designing and implementing a competitive neutrality framework that addresses the major challenges associated with the uneven playing field between SOEs and private businesses.
Source: (OECD, 2012[38])
Egypt is also undergoing a divestment of state-owned assets through sales to regional partner countries. For example, in August 2022, minority stakes in four SOEs were sold to Saudi Arabia’s Public Investment Fund for USD 1.3 billion, although overall sales to partner countries have been somewhat limited. Stakes in 32 SOEs are also to be listed on the Egyptian Exchange or offered within the Sovereign Fund of Egypt’s pre-IPO fund. While these divestment measures can deliver benefits from a fiscal sustainability perspective, they will not necessarily address the adverse effect that SOEs are having on private sector development in Egypt.
Energy
Energy subsidies have historically played a large role in the Egyptian economy. Between the 2016-17 financial year and the 2020-21 financial year, oil, electricity and gas subsidies were reduced significantly from 11.1% of central government expenditure to 1.2% (OECD, 2024[3]). However, the subsequent surge in global energy prices has reversed this trend, with energy subsidies reaching 5.8% of central government expenditures in the 2022-23 financial year. The government plans for the full removal of subsidies by 2025. This transition away from energy subsidies will have important ramifications on SMEs and entrepreneurs. While on the one hand, Egypt’s policy of high energy subsidies has lowered energy costs for SMEs and entrepreneurs, it has also discouraged necessary investments in energy efficiency. As subsidies are phased out, the government could create initiatives that support SMEs and entrepreneurs in reducing their energy consumption, in order to offset the higher costs of energy.
Transport
Basic infrastructure is a key pre-requisite for SME and entrepreneurship development. A relative strength of Egypt’s business environment is its transport infrastructure. In the World Economic Forum’s 2019 Global Competitiveness Index, Egypt ranks 28th out of 141 countries for the quality of its road infrastructure, 40th in the world for its airport connectivity and 18th in the world for its liner shipping connectivity (World Economic Forum, 2019[36]). Morocco is the only middle-income MENA country with a higher overall ranking for transport infrastructure. In the World Bank’s Enterprise Survey (WBES), transportation is cited as a major constraint by just 12.5% of Egyptian businesses with 5-19 employees, which is a much lower share than in other MENA countries (World Bank Enterprise Surveys, 2023[35]). With that being said, transportation is a major constraint for more than two-fifths of businesses in Northern Upper Egypt and more than a quarter of businesses in the Suez region, highlighting that challenges do exist in more remote parts of the country.
Utilities
The results of the WBES suggest that nearly a third (30.3%) of small businesses with 5-19 employees experience electrical outages, with an average of nearly one outage per month lasting close to one hour. Moreover, small businesses are less likely to have a standalone generator on site than larger businesses, meaning they are more exposed to power outages. Disruptions to water supply can also be a challenge, with 4.2% of small businesses (5-19 employees) and 5.9% of medium-sized businesses (20-99 employees) experiencing water insufficiencies. These results show that some SMEs in Egypt do experience challenges linked to the country’s infrastructure. These issues are more prevalent among SMEs than large companies, placing smaller businesses at a competitive disadvantage.
Commercial space
Access to suitable commercial space can be a challenge for SMEs and entrepreneurs. In order to address this, the MSME Law stipulates that 30% of available space in industrial zones, touristic areas, urban communities and reclaimed agricultural land is allocated to SMEs. Meanwhile, the Industrial Development Authority has established 13 industrial complexes, spread across 12 governorates. These complexes are designed specifically for SMEs, providing them with working spaces and utilities. As of March 2023, 4 813 SMEs had made use of these industrial complexes. Other benefits are also available to SMEs in industrial complexes, including flexible rental payments and discounted licensing support services. In addition, the industrial complexes have been made available to informal enterprises, which are provided with a 12-month grace period for them to obtain the necessary paperwork. However, an estimated 25% of spaces at industrial complexes are vacant, which is due in part to the fact that most of the complexes are in remote regions of Upper Egypt. The costs and administrative requirements for setting up in the industrial spaces should be lowered in order to boost demand in areas where vacancy rates are high. This could be complemented by awareness-raising efforts targeting SMEs and entrepreneurs. Steps should also be taken to ensure that sufficient industrial space is provided in areas where demand among SMEs and entrepreneurs is highest. It is also important to monitor the implementation of the MSME Law to verify that the stipulated 30% land allocation is in-fact being allocated to SMEs. Alongside these public initiatives, it is important to examine how current regulations may be inhibiting the provision of commercial spaces by private entities.
With a young and skilled population, high-quality research institutions and a burgeoning venture capital industry, Egypt has many of the ingredients needed for fostering a dynamic population of successful start-ups and SMEs. However, the realisation of this entrepreneurial potential is being limited by a number of bottlenecks in the business environment. Firstly, the successive crises of the COVID-19 pandemic and Russia’s war of aggression against Ukraine have exposed and exacerbated a number of vulnerabilities and imbalances in the Egyptian economy. This has led to a highly challenging macroeconomic environment for SMEs and entrepreneurs characterised by rising input costs and subdued demand. Efforts are needed to maintain macroeconomic stability and support private sector development in the medium to long term.
There is considerable scope to improve the business environment by lowering the cost of regulatory compliance, which would encourage business ownership, bolster productivity, promote internationalisation and incentivise formalisation. Meanwhile, continuing to reduce the large role of state-owned enterprises in the economy and the competitive advantages they enjoy would further stimulate SME and entrepreneurship development in many sectors, building on the important steps contained within the state ownership policy. Financial markets in Egypt also need to be deepened and diversified to address the widespread financing gaps caused by high rates of informality and a lack of trust and understanding between private enterprises and banks.
More positively, government spending on education and research and development has increased in recent years, which will strengthen the pipeline of skills and innovative companies going forwards. However, further progress is needed to bring Egypt’s public spending levels in these areas in line with international averages and to secure commercialisation of R&D outputs and address skill shortages.
Reduce the regulatory burden on SMEs and entrepreneurs
Introduce a mandatory SME Test to determine the impacts of proposed regulatory or legislative changes that could impact SMEs and entrepreneurs.
Reinstate the regulatory guillotine to review, eliminate and streamline the existing stock of business regulations.
Increase the capacity of ERRADA to support public entities in conducting SME tests and regulatory simplification, drawing from OECD Best Practice Principles for Regulatory Policy (OECD, 2020[39]).
Streamline the business registration process, including by allowing companies to register without having a commercial address, providing model articles of incorporation and removing the need to use a lawyer. Consolidate the existing pool of business licenses into a smaller number of broader licenses, with a co-ordinating body acting as a single point of contact for license applicants and a centralised online platform for MSMEs to submit and track multiple applications for different licenses.
Expand access to and eligibility criteria for the incentives in the MSME Law to ensure that start-ups can also benefit. Intensify outreach activities to raise awareness and uptake of the MSME Law incentives, including through the use of trusted entities as implementation partners.
Alleviate financing challenges
Increase the provision of capacity building and training to commercial banks to better understand and serve the needs of SMEs, building on the initiatives of the Egyptian Banking Institute.
Launch the e-Know-Your-Customer platform (currently under development by the CBE) in order to streamline banking procedures.
Strengthen R&D exploitation through SMEs and entrepreneurship
Establish an entity responsible for evaluating universities and research institutions, with “third mission” activities integrated into evaluation criteria and incentives, including promotion of entrepreneurship and knowledge transfer to SMEs.
Remove legal obstacles faced by researchers in commercialising research, including restrictions on enterprise creation and the lack of a clear intellectual property framework.
Address skill shortages
Expand mentoring and advice to SMEs and entrepreneurs to support them in identifying skills gaps and appropriate training offers to address these gaps, building on the entrepreneurship training, mentoring, and consulting services offered by MSMEDA as well as other initiatives such as the CBE’s NilePreneurs programme.
Level the competitive playing field
Implement a comprehensive competitive neutrality framework, with concrete methodologies and mechanisms to calculate and fully offset the regulatory, tax, pricing and financing advantages that SOEs benefit from. The provisions in the framework should regulate all commercial activities conducted by government entities, including those conducted by government entities that are not registered as enterprises.
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← 1. Lower middle-income countries are defined by the World Bank as those with a gross national income (GNI) per capita in 2021 of between USD 1 085 and USD 4 255 (World Bank, 2023[41]). Upper middle-income countries are those with a GNI per capita in 2021 of USD 4 256 – USD 13 205.
← 3. The implementation of the incentives under the MSME Law has so far been limited. Activating the MSME Law is a priority for MSMEDA, which is aiming to implement the incentives in 2023.
← 4. GAFI has reduced the number of documents required from companies to obtain services for the approval of general assemblies and boards of directors. Companies are required to keep all documents and papers that are no longer needed for submission and must provide them to GAFI upon request. GAFI has also issued a decision to reduce the number of documents required from companies to obtain the services for forming committees to determine the executive status and to start activities. The decision includes eliminating 62% of the documents that companies were previously required to submit to obtain these services.
← 5. OECD Financing Scoreboard 2022, World Bank data on local currency GDP
← 6. In 2018, women owned only 5.2% of land in Egypt (World Bank and National Council for Women, 2018[40]).It should be noted, however, that this picture is likely to have evolved since 2018, with many women-focused initiatives having since been introduced.